This guide covers the frequently asked question how do I qualify for a mortgage loan and get approved. Mortgage lenders do not just lend a home loan to anyone. Lenders need to make sure borrowers qualify not just in making their making their new mortgage payments but borrowers need to qualify and meet minimum mortgage guidelines:
Borrowers need to prepare on how do I qualify for a mortgage loan. Banks, credit unions, mortgage companies are not in the business of owning real estate.
Mortgage lenders are in the business of lending money and want home as collateral in the event borrowers default on their home loan. They want to make sure that borrowers can repay the mortgage loan. Lenders want to make sure the payments are made in a timely manner. They want to be secure borrowers are able and responsible to pay mortgage payments timely. In the following paragraphs, we will cover the frequently asked question how do I qualify for a mortgage loan and get approved.
Components of the Monthly Housing Payment
A housing payment on a new mortgage loan consists of several different components. Besides principal and interests, homeowners owners need to pay the following:
- taxes
- hazard insurance
- homeowners association dues if any
- flood insurance if the house and any of the structures on the property is in a flood zone
Homeowners need to make sure housing payments will not cause financial stress where they need to make payment arrangements in the future. Qualifying for a mortgage loan and getting approved involves several steps and considerations.
Check Your Credit Score
Lenders use your credit score to assess your creditworthiness. A higher credit score typically means better loan terms. Aim for a score of at least 620, though scores above 700 are preferable for favorable terms. Lenders prefer a DTI below 43%, though some may accept higher ratios.
Get Pre-Approved For a Mortgage
Getting pre-approved for a mortgage lets you know how much you can borrow and helps streamline the homebuying process. It involves submitting financial documents for the loan amount you qualify for. Borrowers must provide various documents, including proof of income (such as pay stubs, W-2 forms, or tax returns), bank statements, and identification. Click here to get approval for a mortgage
Shop Around for Lenders
Different lenders offer different mortgage products and terms. Compare multiple lenders’ interest rates, fees, and terms to find the best option. Understand Different Loan Options: There are various mortgage options, such as conventional loans, FHA loans, VA loans, and USDA loans. Each has its requirements and benefits, so research which aligns best with your financial situation and homeownership goals.
Work on Improving Your Financial Profile
If your credit score or DTI ratio needs improvement, address these issues before applying for a mortgage. This might involve paying down debt, disputing errors on your credit report, or increasing your income.
Be Prepared for the Appraisal and Closing Process
Once your offer on a home is accepted, the loan will be sufficient to secure it. After the appraisal and underwriting process, you’ll attend the closing to sign the necessary paperwork and officially take ownership of the home. Lenders prefer borrowers with stable employment and income histories. Avoid changing jobs or making large purchases (like a new car) before or during the mortgage application process.
How Do I Qualify For a Mortgage Loan and Meet Lenders Guidelines
Mortgage lenders require minimum down payments depending on loan program borrowers qualify for. For conventional loans, there is a 5% minimum down payment requirement. For FHA loans, the minimum down payment required to qualify for a mortgage loan is 3.5%. Lenders require a two year employment history and residential history.
Down payment requirements range from 3% to 20% of the home’s purchase price. The higher your down payment, the lower your monthly mortgage payments will likely be.
Borrowers need to be able to document full time income. Most lenders like to see two years of continuous employment history. Gaps in employments are allowed as long as borrowers have a good letter of explanation of why they were a job hopper or had periods of unemployment.
How Do I Qualify For a Mortgage Loan and Meet Minimum Credit Score Requirements
There are minimum credit score requirements: For example, borrowers who need to qualify for conventional mortgage with a 5% down payment, the minimum credit score required is 620 credit score. To qualify for a 3.5% down payment FHA loan, the minimum credit score required is 580 credit score.
If credit scores fall between 500 and 579, the minimum down payment required is 10% down payment. VA loans do not have minimum down payment requirements and offer 100% down payment.
There is no credit score requirements to qualify for VA loans. USDA loans require 580 credit scores. HomePath mortgage loans which no longer is available used to require a minimum 660 credit score. Traditional jumbo mortgages require a minimum credit score of 700. Non-QM jumbo loans require 620 credit scores. Condotel and non-warrantable condo loans require a minimum credit score of 680.
How Do I Qualify For a Mortgage Loan and Meet Guidelines
Besides qualifying with minimum credit scores, lenders have other credit guidelines. There are mandatory waiting guidelines after bankruptcy, foreclosure, deed-in-lieu of foreclosure, and short sale. For FHA, VA, USDA loans, there is a mandatory two year waiting period after Chapter 7 Bankruptcy. The waiting period starts from the date of the bankruptcy discharge. VA and FHA borrowers can qualify for FHA and VA loans one year into a Chapter 13 Bankruptcy repayment plan with trustee approval.
There is no waiting period after Chapter 13 Bankruptcy discharge date to qualify for VA and FHA loans. There is a four year waiting period after Chapter 7 bankruptcy to qualify for a conventional loan.
There is a three year waiting period to qualify for FHA and USDA loan after foreclosure or deed-in- lieu of foreclosure. The three year waiting period starts from the recorded date of the foreclosure or deed-in-lieu of foreclosure reflected on the recorder of deeds office. Not the date the foreclosure or deed in lieu of foreclosure was initiated. There is a three year waiting period after a short sale on FHA and USDA loans. The waiting period clock starts from the date of the short sale reflected on the HUD’s settlement statement. There is a two year waiting period after foreclosure, deed-in-lieu of foreclosure, short sale to qualify for VA loans. Get qualify for a mortgage loan
Conforming Loans After Housing Event
There is a 7 year waiting period after a foreclosure to qualify for a conventional loan. The 7 year waiting period clock starts from the recorded date of the foreclosure that is reflected on public records. There is a four year waiting period after a deed in lieu of foreclosure or short sale to qualify for a conventional loan with 5% down payment.
Those with foreclosure included as part of Chapter 7 bankruptcy, the waiting period is four years from Chapter 7 bankruptcy discharge date to qualify for a conventional mortgage loan.
Foreclosure, deed-in-lieu, or short sale could have happened after the Chapter 7 Bankruptcy discharged date and does not matter. The mortgage included in the Chapter 7 Bankruptcy cannot have been reaffirmed.
Qualifying For a Mortgage Loan With Bad Credit
Mortgage lenders understands that people go through periods of financial hardship and that bad credit is the result when people do go through hardship. Homebuyers can qualify for a mortgage loan with prior bad credit. However, borrowers cannot have recent bad credit. Borrowers need to have good on time payment history at least for the past 12 months. Recent late payments will most likely disqualify from qualifying for a mortgage loan. Credit report will be reviewed and overall credit history will be evaluated. Here is case scenario how mortgage underwriters view borrowers with a 10 year credit history with perfect credit
- their first 7 years had perfect credit
- but had a streak of bad credit on years 8 and year 9
- but on year 10 they have recovered and re-established credit are in good shape
Borrowers with habit of paying debts late throughout the whole ten year of credit history and even had recent late payments, collections, and charge offs, they need to re-establish credit for the next 12 months in order for them to qualify for a mortgage loan. Homebuyers who need to qualify for mortgage with a direct lender with no mortgage overlays on government and conventional loans can contact Gustan Cho Associates Mortgage Group at 800-900-8569 or text us for faster response. Click here to get qualify for mortgage loan with bad credit
